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Editor's note: In today's essay, we once again welcome our friend Chris Weber. In addition to being one of the world's best investors, Chris also has an extraordinary knowledge of history and human behavior. For one of the biggest trends he sees taking place right now, read on... How the U.S. Gov't Is Choking Off Access to Traditional Safe HavensBy
Tuesday, June 14, 2011
Everywhere I go in the financial world in Europe, I hear the same thing: The U.S. is shooting itself in the face.
The problem is the regulations the U.S. now insists every nation impose on U.S. companies or people seeking to do business or lower their taxes.
For instance, there are two Swiss cantons that are using low corporate taxes to lure companies to place their headquarters there. The more famous one is Zug, but the up-and-coming one is Obwalden (which just passed a flat tax rate of 6% of a company's profits).
Companies from all over the world are using this to lower their taxes. But when even the bluest-chip U.S. company – publicly traded on the NYSE – sought to do so recently, it was turned away. Almost no one wants to deal with U.S. companies or people anymore. They've decided it is more problem than it is worth, due to the intense regulatory atmosphere from the U.S.
It used to be that anyone, from whatever nation, could come to the Obwaldner Kantonalbank (OKB) and open an account, even if they had just $100. (Those who know the gold and silver ETFs offered by the Zuricher Kantonalbank (ZKB) know these banks are backed by the cantonal governments and are thus very safe. These are the banks that are regarded as public utilities.)
But starting around four years ago, with the UBS debacle and the U.S. financial crisis, this all changed. The long arm of the U.S. government and the numerous new regulations have made OKB decide it will not take on American clients.
And please don't think I'm talking about tax-evaders here. Americans who used to be able to open accounts with tiny amounts of money at a safe bank like this and treat it just as they would their local banks, fully declaring all their money – these people are no longer welcome. It was with sadness that they told me this. But it is just too much trouble dealing with all the American red tape.
The effect of this is to deny small U.S. investors a way to protect themselves from unsafe banks and devalued U.S. currency. Now, pretty much anyone except Americans can do this.
It goes the other way, too. Non-U.S. companies used to dream of listing themselves on the NYSE: That was the "big-time." But it is no accident that the overall number of listings on the "Big Board" reached its peak in 1997 and has been falling ever since.
Again, the problem is excessive regulation. The companies can list themselves on Hong Kong, Singapore, or London exchanges with much less cost and headache. The list of companies who have turned down a chance to list themselves on U.S. exchanges is long.
It goes further than this. There are many nations on earth that have no inheritance taxes, or maybe just small ones. But if a non-U.S. person buys stocks in the U.S. (in excess of about $60,000), their estate has to pay U.S. estate taxes if they die. So no wonder people are not excited to buy U.S. stocks.
If the object of the government is to encourage investment, entrepreneurship, and create jobs, this is exactly the wrong way to go about it.
And I'm not blaming just one political party. Things are the same now as under the last American president. It's as if the nation has decided it no longer wants to encourage its companies or foreigners to invest in the U.S. Most likely, they don't think of it in those terms; they likely still think that since the U.S. is such a great country, then of course anyone would want to invest there.
But the truth is that by doing these things, non-U.S. people are less likely to invest, and thus the U.S. is seen to be simply hurting itself.
More than just hurting itself, it is building up ill will all around the world. It is getting so that people will be avoiding the U.S. entirely, going around it to invest and even trade. I know this sounds like an extreme reaction. But if things go the way they've been going for the last four or five years, this will be the result.
The American government can put on all these restrictions and keep out foreign investors and companies who want to list on the NYSE. It can deny the right of even the smallest investor to diversify into another banking system with a stronger currency.
But will this make for a stronger U.S.? Are we entering a new world where everyone prospers except for Americans? If so, it is particularly sad, since America will be turning its back on the very ideas which made it so great.
You see, one hundred years ago, there was outright famine in Obwalden. Full of farmers who often had 10 children, the available farmland was just not enough for the people. Starvation got so bad, the Swiss government offered anyone free passage to America if they would promise never to come back. Many of them settled in the Imperial Valley of California, about as far from the Alps and green meadows as you can get.
The U.S. was haven for the poor people of Obwalden, who were starving and saved by moving to America. These people are very appreciative of what America offered to their great-great-grandparents: America literally saved their lives.
And that is why they don't understand why America is now "destroying itself," as one of them told me. They are very, very sad to see it happen. In fact, they seem much sadder and more concerned about what has happened to the U.S. than most Americans do.
Regards,
Chris Weber
Further Reading:
"If you want to contact the Oberwaldner Kantonalbank," Chris writes, "you can go here... Just don't bother if you are American."
Fortunately, the gold and silver ETFs offered by the Zuricher Kantonalbank are still open to U.S. investors. You can learn more about them here: Finally, Precious Metals ETFs I Can Safely Recommend.
Market NotesBEARISH ACTION FROM A COMMODITY LEADER "Lower highs and lower lows." That's the story in the commodity sector right now. To illustrate this story, we once again turn to the Brazilian stock market...
Regular readers know we regard Brazil as one of the great destinations for commodity investment. Its state-operated oil company, Petrobras, has found a series of giant offshore oilfields in the past decade. Brazil is a major producer of agricultural commodities like soybeans, cattle, corn, coffee, and sugar and a major producer of iron ore. Much of this production heads to China, Brazil's largest trading partner.
Brazil's large commodity exposure makes the action in its benchmark stock index – the Bovespa – a good way gauge the market action in commodity shares. In 2009, the index climbed 100%. But since its peak last November, the Bovespa has been locked in a bearish series of "lower lows and lower highs."
We state once again: We can't know if this is the beginning of a big commodity downtrend... But we can say Brazil's weak trading action has our "antennae" up. If commodity investments are to gain in 2011, they'll need Brazilian stocks at the front of the pack. Right now, they are at the rear and lagging.
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